If you’re looking to invest in the stock market, you might have come across two popular ETFs: VTI vs VBR.
Both of these ETFs are offered by Vanguard and have similar investment objectives.
However, there are some key differences between the two that you should be aware of before making a decision.
VTI, or Vanguard Total Stock Market ETF, is designed to track the performance of the entire U.S. stock market. It invests in a wide range of companies, from large-cap to small-cap, across various sectors. On the other hand, VBR, or Vanguard Small-Cap Value ETF, focuses on small-cap stocks with value characteristics. These are companies that are considered undervalued by the market, but have strong fundamentals and growth potential.
If you’re wondering which one is better for you, it’s important to do a comparative analysis of VTI vs VBR. This includes looking at their performance, cost, holdings, and other risk and return metrics. Additionally, you should consider your own investment strategies and goals, as well as your risk tolerance. By doing so, you can make an informed decision on which ETF to invest in.
Key Takeaways VTI vs VBR
- VTI and VBR are both popular ETFs offered by Vanguard with similar investment objectives, but have key differences in their investment strategies.
- A comparative analysis of VTI vs VBR is important to consider before investing in either ETF.
- Your own investment strategies, goals, and risk tolerance should also be taken into account when deciding which ETF to invest in.
Understanding VTI vs VBR
When it comes to investing in the stock market, exchange-traded funds (ETFs) are a popular choice for many investors. Two such ETFs are the Vanguard Total Stock Market ETF (VTI) and the Vanguard Small-Cap Value ETF (VBR). In this section, we’ll take a closer look at these two ETFs and what makes them different.
Vanguard Total Stock Market ETF (VTI)
VTI is an ETF that seeks to track the performance of the CRSP US Total Market Index. This index includes all the stocks in the U.S. equity market, from large-cap to small-cap stocks. VTI is designed to provide investors with exposure to the entire U.S. stock market in a single investment.
VTI has a very low expense ratio of 0.03%, which makes it a very cost-effective way to invest in the stock market. The ETF holds over 3,500 stocks, with its largest holding being Apple Inc. VTI has provided a return of 1.80% higher than VBR over the past ten years.
Vanguard Small-Cap Value ETF (VBR)
VBR is an ETF that seeks to track the performance of the CRSP US Small Cap Value Index. This index includes small-cap U.S. stocks that are considered to be undervalued based on certain value metrics such as price-to-book ratio.
VBR has a slightly higher expense ratio of 0.07% compared to VTI. The ETF holds over 800 small-cap value stocks, with its largest holding being Builders FirstSource Inc. VBR has a price history that is real, whereas the model performance is hypothetical.
Small-cap value stocks are generally considered to have higher growth potential than large-cap stocks. However, they also tend to be more volatile and carry a higher degree of risk. VBR is designed for investors who are willing to take on that risk in exchange for potentially higher returns.
In summary, VTI and VBR are two ETFs that offer exposure to different segments of the U.S. stock market. VTI is designed to provide investors with exposure to the entire U.S. stock market, while VBR focuses on small-cap value stocks. Both ETFs are offered by Vanguard and have low expense ratios, making them a cost-effective way to invest in the stock market.
Comparative Analysis VTI vs VBR
When it comes to choosing between VTI and VBR, there are several factors to consider. In this section, we will compare the two ETFs in terms of their performance, expense ratios and fees, as well as their holdings and sector allocation.
Performance Comparison
VTI is an ETF that tracks the performance of the CRSP US Total Market Index, while VBR tracks the performance of the CRSP US Small Cap Value Index. Over the past 10 years, VTI has provided an annualized return of 16.88%, while VBR has provided an annualized return of 14.06%. This means that VTI has outperformed VBR in terms of returns.
Expense Ratios and Fees
One of the most important things to consider when choosing an ETF is the expense ratio. The expense ratio is the annual fee that the ETF charges for managing your investment. VTI has an expense ratio of 0.03%, which is lower than VBR’s expense ratio of 0.07%. This means that VTI is a more cost-effective option than VBR.
Holdings and Sector Allocation
VTI and VBR have different holdings and sector allocations. VTI is more diversified than VBR, as it holds over 3,500 stocks across various sectors. On the other hand, VBR holds around 1,200 stocks, with a focus on small-cap value stocks. VTI’s top holdings include Apple Inc, Microsoft Corp, and Amazon.com Inc, while VBR’s top holdings include Builders FirstSource Inc, Cabot Oil & Gas Corp, and Lumentum Holdings Inc.
In terms of sector allocation, VTI has a higher allocation to technology stocks, while VBR has a higher allocation to financials and industrials. VTI is also more heavily invested in large-cap stocks, while VBR is more heavily invested in small-cap stocks.
In conclusion, VTI and VBR are both excellent ETFs with their own unique advantages. If you are looking for a more diversified ETF with lower fees, VTI may be the better option. However, if you are looking for exposure to small-cap value stocks, VBR may be the way to go.
Investment Strategies VTI vs VBR
When it comes to investing in ETFs, there are several investment strategies that you can follow. In this section, we will discuss some of the most common strategies that investors use when investing in VTI and VBR.
Portfolio Diversification
One of the most important investment strategies is portfolio diversification. By diversifying your portfolio, you can reduce your overall risk and increase your chances of achieving long-term success. When investing in VTI and VBR, it is important to consider your investment goals and risk tolerance. You can diversify your portfolio by investing in a mix of stocks, bonds, and other assets.
Rebalancing and Timing
Another important investment strategy is rebalancing and timing. Rebalancing involves buying and selling assets to maintain a specific asset allocation. Timing involves buying and selling assets based on market conditions. When investing in VTI and VBR, it is important to consider your investment goals and risk tolerance. You can use a buy-and-hold strategy or a more active strategy that involves rebalancing and timing.
Long-Term vs Short-Term Investing
Finally, it is important to consider your investment time horizon when investing in VTI and VBR. If you are investing for the long-term, you can take advantage of the power of compounding to achieve your investment goals. If you are investing for the short-term, you may want to consider a more conservative investment strategy that focuses on preserving your capital.
In conclusion, there are several investment strategies that you can use when investing in VTI and VBR. By diversifying your portfolio, rebalancing and timing your investments, and considering your investment time horizon, you can increase your chances of achieving long-term success.
Risk and Return Metrics
When comparing VTI and VBR, it’s important to consider several risk and return metrics to determine which is the better investment. Here are some of the key metrics to consider:
Alpha and Beta
Alpha measures the excess return of an asset compared to its expected return, given its beta. Beta measures the volatility of an asset relative to the overall market. VTI has a higher beta than VBR, which means it is more volatile. However, VBR has a higher alpha than VTI, which means it has produced higher returns relative to its risk.
Sharpe Ratio and Volatility
The Sharpe ratio measures the excess return of an asset relative to its volatility. VBR has a higher Sharpe ratio than VTI, which means it has produced higher returns relative to its risk. However, VBR is also more volatile than VTI, which means it has a higher standard deviation of returns.
When considering the risk and return metrics of VTI and VBR, it’s important to keep in mind that past performance is not indicative of future results. It’s also important to consider other factors, such as the correlation between the two assets and their yield. Overall, both VTI and VBR are solid investment options, but investors should carefully consider their risk tolerance and investment goals before making a decision.
Considerations for Investors
When choosing between VTI and VBR, there are several factors to consider that can affect your investment decision. Here are some key considerations to keep in mind:
Tax Implications
One important factor to consider is the tax implications of investing in VTI vs VBR. VTI is designed to track the performance of the entire U.S. stock market, while VBR focuses on small-cap value stocks. This means that VBR may have a higher tax burden due to turnover and other factors. If you are investing in a taxable account, it may be worth consulting with a tax professional to determine which option is best for you.
Market Conditions and Economic Indicators
Another consideration is the current market conditions and economic indicators. While past performance is not a guarantee of future results, it can be helpful to look at how each fund has performed in different market conditions. For example, VBR may perform better in a bull market, while VTI may be more resilient during a downturn. Keep in mind that market conditions can change quickly, so it’s important to stay up-to-date on the latest economic news and indicators.
Investor Profile and Goals
Finally, it’s important to consider your own investor profile and goals when choosing between VTI and VBR. If you have a long time horizon and are investing for retirement, you may be more willing to take on risk and invest in small-cap value stocks. On the other hand, if you are more risk-averse and prefer a more diversified portfolio, VTI may be a better option. Consider your own goals and risk tolerance when making your decision.
Overall, both VTI and VBR can be valuable additions to a well-diversified portfolio. By considering tax implications, market conditions, and your own investor profile and goals, you can make an informed decision about which option is right for you.
